KWOK v Regina

KWOK v Regina - [2007] NSWCCA 281 - NSWCCA 2007 case summary — Zoe

CATCHWORDS: CORPORATIONS LAW: - Section 184(2)(a) of the Corporations Act 2001 (Cth) imposing criminal offence where director uses position dishonestly with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation - appellant charged with two charges of dishonest use of his position as a director with the intention of gaining an advantage for two other companies with which through family members he was associated - no detriment to the corporation shown - circumstances involved a lease to the corporation of which the appellant was a director of land owned by the two associated companies of the appellant - leases not shown to be on specially favourable terms but advantage lay in securing certainty that the leases would be granted - effect of reducing the period stipulated for each offence to a time just prior to the coming into force of changes to the Criminal Code (Cth) introducing a new definition of dishonesty differing from that hitherto applicable in relation to the Corporations Act - appeal on ground of failure to give a direction, offered and declined at trial, in terms of R v Ghosh [1982] QB 1053 at 1064 whereby dishonesty is made out according to ordinary standards of reasonable and honest people but also requiring the defendant to know ordinary people considered relevant conduct to be dishonest - distinction between acting improperly and acting dishonestly for purposes of statutory offences - relevance of concealment by the director concerned in indicating dishonesty. - SENTENCING: - appeal against sentence as unduly harsh, manifestly excessive and placing disproportionate weight on need for general and personal deterrence - trial judge's failure first to consider sentence before considering how sentence was to be served here by way of periodic detention - error in structuring the two sentences for the two offences in terms of giving a longer sentence for second offence than first when relevantly indistinguishable - no error as to deterrence being properly taken into account - re-sentencing according to principles of totality leading to modest reduction in sentence.

[13]

(2) A director, other officer or employee of a corporation commits an offence if they use their position dishonestly: (a) with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation … " 2 The appellant, James Kwok, was charged with two charges of dishonest use of his position as a director of Envirostar Energy Limited ("EEL") with the intention of gaining an advantage for two other companies with which he was associated, being Donaldson Industries Pty Ltd ("Donaldson") and Macarthur Transport Pty Ltd ("Macarthur"). The appellant pleaded not guilty on both charges. 3 The association was through his son in the case of Donaldson and through his wife in the case of Macarthur, each being the principal shareholders; neither bore Mr Kwok's surname or were otherwise obviously identified with Mr Kwok. In each case Mr Kwok was able to, and did conceal his association when facilitating EEL taking a lease from each company (see below). This was the dishonesty identified by the primary judge Murrell DCJ in her Honour's directions to the jury and in the aide memoire given to the jury; see AB 1, 452-454. 4 The circumstances leading to the bringing of the charges concerned the granting of commercial leases to EEL over two plots of land, one in Stapylton Queensland and the other in Morwell Victoria, by Donaldson and Macarthur respectively. The leases were granted respectively on 20 April 2000 and were for the purpose of EEL constructing a plant to generate "green" energy power. 5 The Crown argued successfully at trial that the appellant had dishonestly used his position as a director of EEL to facilitate the entry into the leases and had done so intending to gain through them an advantage for Donaldson and Macarthur. 6 The Crown did not however submit that there was, in terms of s184(2)(a), any detriment to "the corporation", viz EEL, of which Mr Kwok was a director and chief executive officer. Nor was any such detriment alleged by the other directors of EEL, in particular Mr Gillespie in his evidence. That evidence went no further than Mr Gillespie saying that Mr Kwok would have been excluded from any board consideration of the leases if his association and hence interest in the matter had been known. Nor was it alleged that EEL was paying more than market rental for the leases or that entry into the leases was not in the interests of EEL. Mr Gillespie did however state that "I can't say what would have happened if Mr Kwok was not included in the discussions or negotiations; AB 1, 123. 7 The original indictment stipulated the period of each offence as being between about 1 April 2000 and 30 August 2002 in the case of the Stapylton charge and between about 30 June 2000 and (again) 30 August 2002 in the case of the Morwell charge. The indictment was amended on 30 October 2006, the ninth day of the trial proceedings, such that the period in each charge was reduced so the end date was 14 December 2001 in each case. This change was sought for reasons that I set out below. The circumstances surrounding the making of the change form the basis for one of the grounds of appeal against conviction. 8 The appellant was convicted by a jury on the two separate charges under s 184(2)(a). A concurrent sentence was handed down by the trial judge comprising in effect 24 months' periodic detention with a non-parole period of 14 months. I comment later on the sentencing process followed. 9 The appellant appeals against the conviction on grounds relating to what are submitted to have been incorrect directions by the trial judge to the jury as to the required standard of dishonesty under s184(2)(a) insofar as concerns the distinction between dishonesty and impropriety in relation to use of directorial position. Grounds 1 and 2 of the appeal are as follows: " Ground 1 : There was a miscarriage of justice in that the trial judge erred in failing to give a proper or adequate direction to the jury regarding the element of dishonesty in accordance with the Ghosh test ( R v Ghosh [1982] QB 1053).

[16]

The Stapylton site 16 Negotiations had been taking place since August 1999 between the appellant, on behalf of Energy Equipment, and the then owner of the Stapylton site, Mr Graham McDonald of McDonald Earthmoving Equipment Pty Ltd, for the purchase of the Stapylton site by Energy Equipment for a sum of $600,000. 17 On 28 October 1999, the appellant, in his role as General Manager of Energy Equipment, made a development application in relation to the Stapylton site. On 12 November 1999, Energy Equipment was granted an option to purchase the Stapylton site from MacDonald Earthmoving Equipment Pty Ltd. 18 On 6 March 2000, Energy Equipment exchanged contracts for sale of land with McDonald Earthmoving Equipment Pty Ltd in relation to the Stapylton site, the sale price being the $600,000 sum earlier negotiated. 19 On 28 April 2000, a different contract for sale for the Stapylton site was executed, with the purchaser nominated by the appellant being not Energy Equipment but Pacific Energy International Pty Ltd. 20 On 28 May 2000, the appellant wrote to valuers requesting a valuation of the Stapylton land and an indication of the appropriate lease amount for the site per annum. 21 On 29 May 2000, the appellant agreed to an extended settlement in relation to the sale of the Stapylton site. 22 On that same day, Donaldson was registered as a company. The appellant was its sole director and secretary between 30 May 2000 and 21 June 2000 inclusive. At all relevant times from 21 June 2000, the appellant's son, Clinton Kardi, was the sole director and shareholder of Donaldson. 23 On or about 30 May 2000 a further contract for sale was exchanged in respect of the Stapylton site, with the purchaser this time being nominated as Donaldson. 24 On 19 June 2000, ownership of the Stapylton site was transferred to Donaldson. 25 On 5 July 2000, the board of directors of EEL met and resolved that EEL be authorised to lease the Stapylton site from Donaldson, with the commencement date for the lease specified to be 1 April 2000. The dates of execution specified on the lease document (Appeal Book, 837) were 1 April 2000 (by Donaldson) and 20 April 2000 (by EEL). 26 On 22 August 2000, the board of directors of EEL met and resolved that EEL would exercise the option held by Energy Equipment to take over the Stapylton project. 27 On a number of occasions both prior to and subsequent to the lease transaction between EEL and Donaldson, the appellant failed to disclose his close association with Donaldson. These occasions included, amongst others, meetings of the board of directors of EEL on 7 June 2000, 5 July 2000, 12 July 2000, 27 July 2000, 9 August 2000 and 22 August 2000. At all these meetings the Stapylton (and Morwell) projects were the subject of discussion and/or report. The appellant was present at each of the meetings. There was further discussion of the Stapylton site during the course of which the appellant again failed to disclose his interest in Donaldson, in an email of 14 August 2000 and in conversation on 28 August 2000.

[17]

The Morwell site 28 On 18 February 2000, the appellant applied for a planning permit in relation to the Morwell site, which was owned at that time by Pandos Properties Pty Ltd. 29 On 30 June 2000, the Morwell site was sold by Pandos Properties Pty Ltd to Energy Equipment for the sum of $100,000. 30 On 26 July 2000, Macarthur was registered. From the date of registration and at all relevant times thereafter, the sole director, secretary and shareholder of Macarthur was Dianne Meredith, the wife of the appellant and the mother of Clinton Kardi. The appellant was the sole signatory of the bank account for Macarthur (see Appeal Book, 1491). 31 On 27 July 2000, a meeting took place of the board of directors of EEL at which the appellant reported on the Morwell project. The board resolved to take over the Morwell project from Energy Equipment and negotiate the terms of a lease of the Morwell site. 32 On 1 August 2000, the Morwell site was leased to EEL (see Appeal Book, 856-866, in particular at 866). The lessor was stipulated to be Macarthur. The appellant initialled the lease on behalf of his wife Dianne Meredith. 33 On 9 August 2000, a deed of assignment was executed between Energy Equipment and EEL, whereby EEL paid Energy Equipment $385,000 for the Morwell project (see Appeal Book, 618-628). 34 On 18 August 2000, the Morwell site was transferred by Energy Equipment to Macarthur. The appellant signed the transfer on behalf of his wife Dianne Meredith, under a power of attorney (see Appeal Book, 1455). This transfer of the property occurred, according to the documents themselves, only after the execution of the lease on 1 August 2000, but in spite of this, the lease stipulated Macarthur as lessor. No explanation was given for this apparent discrepancy, though nothing in this appeal appears to turn on this. 35 On 28 August 2000, the board of directors of EEL met and resolved that EEL would proceed with the Morwell project, taking it over from Energy Equipment via the deed of assignment. That decision appears to have been undertaken after the deed itself was entered into on 9 August 2000. No explanation was offered for this apparent further discrepancy but again nothing appears to turn on this. 36 On 29 August 2000, the appellant resigned as a director of EEL in order to address the perceived conflict of interest issue in respect of his position at EEL and the positions he held with Energy Equipment and EEE.

[19]

Between about the 30th June 2000 and the 30th August 2002 at Sydney in the State of New South Wales, whilst being a director of a company, namely Envirostar Energy Limited ("EEL"), [James Kwok] did dishonestly use his position as a director with the intention of directly or indirectly gaining an advantage for Macarthur Transport Pty Ltd ("Macarthur Transport"), to wit the leasing of land located at 11 McQuade Road Morwell, in the State of Victoria by Macarthur Transport to EEL." 38 The indictment remained in this form until the ninth day of the trial, being 30 October 2006. On the seventh and eighth days of the trial, discussion had already been taking place as to the effect of the applicability of Chapter 2 of the Criminal Code (Cth) to offences occurring on and after 15 December 2001. There had been a difficulty discovered in relation to the effect of the Criminal Code provisions on the applicable test for dishonesty. This was because the test had been changed from the one-limb objective test in Peters v R (1998) 192 CLR 493 at 504 to the two-limb objective/subjective test in R v Ghosh [1982] QB 1053. I set these out below: · Peters v R (1998) 192 CLR 493 at 504 per Toohey and Gaudron JJ (most relevant part in bold): "[18] In a case in which it is necessary for a jury to decide whether an act is dishonest, the proper course is for the trial judge to identify the knowledge, belief or intent which is said to render that act dishonest and to instruct the jury to decide whether the accused had that knowledge, belief or intent and, if so, to determine whether, on that account, the act was dishonest . Necessarily, the test to be applied in deciding whether the act done is properly characterised as dishonest will differ depending on whether the question is whether it was dishonest according to ordinary notions of dishonesty or in some special sense. If the question is whether the act was dishonest according to ordinary notions, it is sufficient that the jury be instructed that that is to be decided by the standards of ordinary, decent people. However, if "dishonest" is used in some special sense in legislation creating an offence, it will ordinarily be necessary for the jury to be told what is or, perhaps, more usually, what is not meant by that word. Certainly, it will be necessary for the jury to be instructed as to that special meaning if there is an issue whether the act in question is properly characterised as dishonest." · R v Ghosh [1982] QB 1053 at 1064 per Lord Lane CJ, delivering the judgment of the Court: "In determining whether the prosecution has proved that the defendant was acting dishonestly, a jury must first of all decide whether according to the ordinary standards of reasonable and honest people what was done was dishonest. If it was not dishonest by those standards, that is the end of the matter and the prosecution fails.

[20]

If it was dishonest by those standards, then the jury must consider whether the defendant himself must have realised that what he was doing was by those standards dishonest. In most cases, where the actions are obviously dishonest by ordinary standards, there will be no doubt about it. It will be obvious that the defendant himself knew that he was acting dishonestly. It is dishonest for a defendant to act in a way which he knows ordinary people consider to be dishonest, even if he asserts or genuinely believes that he is morally justified in acting as he did." 39 The effect of this change was found to be that differing tests for dishonesty would apply to differing parts of the period covered by the indictment. 40 The Crown suggested, and the Court offered to counsel for the appellant, a direction to the jury consistent with the Ghosh test for the entire period of the indictment. Counsel for the appellant declined the offer. That course of action is now disavowed on appeal. 41 On the ninth day of the trial the Crown made an application to the Court nevertheless to give a Ghosh direction for the entirety of the period of the indictment. The trial judge refused the application in view of the attitude that had been adopted by the appellant's counsel. The Crown then applied to amend the period of the indictment such that the period would end on the date the Criminal Code came into effect. The application was granted by the trial judge (see Appeal Book, 440-443 for her Honour's reasons). The indictment was accordingly amended and the appellant re-arraigned. 42 The amended form of the indictment was as follows: "1. Between about the 1st April 2000 and the 30th August 2002 14 December 2001 at Sydney in the State of New South Wales, whilst being a director of a company, namely Envirostar Energy Limited ("EEL"), [James Kwok] did dishonestly use his position as a director with the intention of directly or indirectly gaining an advantage for Donaldson Industries Pty Ltd ("Donaldson Industries"), to wit the leasing of land located at 215 Burnside Road Stapylton, in the State of Queensland by Donaldson Industries to EEL.

[23]

Conviction and sentence 44 The appellant was convicted on both counts, the jury returning its verdict on 31 October 2006. 45 On 9 February 2007, the trial judge delivered her remarks on sentence and handed down sentence on the appellant. In relation to the seriousness of the offences, her Honour noted that the offences had involved both an element of omission, being a continuing failure to disclose, as well as a continuing course of positive conduct, over a period of 18 months, involving active concealment on the part of the appellant. Her Honour considered that the appellant's conduct could not be viewed as a mere isolated lapse (Remarks on Sentence [17]). On the other hand, while there had been an advantage gained for Donaldson and Macarthur in relation to the benefits under the leases, there had been no corresponding loss incurred by EEL (Remarks on Sentence [18]). Further, while the appellant's motive in relation to the lease transactions had been personal gain, his motives generally in relation to EEL and its activities in the field of environmental engineering and the development of green energy, demonstrated commitment and were beyond reproach (Remarks on Sentence [19]). 46 The trial judge made certain observations in relation to the appellant's personal history (see Remarks on Sentence [20]-[23]). At the time of the making of her Honour's sentencing remarks, the appellant was 49 years of age. Of Chinese background, he had been raised in Bandung, Indonesia as one of six children, in circumstances of humble finances and an atmosphere of ethnic conflict related to his Chinese heritage. The appellant had migrated to Australia in 1977, while still a young man. After completing his HSC, he had worked in a department store in order to finance tertiary studies in engineering, which he completed successfully. Once qualified, he had worked very hard and become a successful environmental engineer. 47 The appellant's family, the trial judge noted, had a history of mood disorder. The appellant's older brother committed suicide in 2005, other relatives having suffered from related psychological problems. The appellant himself suffers from an adjustment disorder, with depressed mood. The trial judge noted the appellant's deep sense of embarrassment and shame over the collapse of EEL, and that he had isolated himself socially, including from his wife and children; while they live on the north coast of New South Wales, the appellant resides in Queensland near to his employment. The appellant's principal source of support and solace was noted to be the Catholic Church. 48 The trial judge then turned to deal with considerations of deterrence (see Remarks on Sentence [24]-[25]). In relation to the question of general deterrence, her Honour noted that in matters of directorial conduct such as the present case, general deterrence plays an important role, it being important to promote a culture of frankness and complete integrity in relation to corporate activity, particularly in relation to publicly listed companies such as EEL. 49 As to specific deterrence, the trial judge considered that in the instant circumstances, where: · the appellant had previously been convicted (on 31 May 1991) of obtaining a valuable thing by deception, the penalty for that conviction having been a 500-hour community service order; and · the present offences had been of an ongoing nature (involving a continuing course of conduct),

[35]

DISPOSITION First Issue: Correctness or otherwise of the direction in relation to the element of dishonesty. 55 The direction given needs to be placed in the context in which the issue was raised at trial. On the seventh and eighth days of the trial there was discussion concerning the effect of the applicability of Chapter 2 of the Commonwealth Criminal Code (the "Code") to all Commonwealth offences on and from 15 December 2001; see T, 294, 304-307. The particular difficulty that was identified was that during the period covered by both counts in their original unamended form the effect of the introduction of the Code may have changed the meaning of "dishonesty" from that discussed in Peters v R (supra) to a test of the kind stated in Ghosh. As I have earlier explained, eventually the Crown suggested and the court offered counsel for the appellant a direction to the jury consistent with the Ghosh test for the entirety of the period covered by the indictment, which counsel for the appellant declined; T, 335.5. 56 On the beginning of the ninth day, the Crown then made an application for the court to nevertheless give a Ghosh direction for the entirety of the charge period. The trial judge refused the application in view of the attitude of the defence (T, 337.4). The Crown then applied to amend the indictment to narrow the period the subject of the charge so that it ended on 14 December 2001, that is to say the day prior to the date the Code came into effect; T, 337.6-338.1. The trial judge then heard argument on the application to amend before granting the application, the appellant was re-arraigned and the Crown Prosecutor commenced her address; T, 338-352. 57 The Crown submissions, in uncontroversial fashion, set out the history of the relevant statutory provisions which I set out below. "10. First, for the period prior to 13 March 2000 (i.e. prior to these offences) the relevant provisions concerning defences for breaches of directors duties were section 232 and 1317FA of the Corporations Law . …. A contravention of any sub-sections 232(2), (4), (5) and (6) was a breach of a " civil penalty provision " and subjected the contravenor to the civil penalty enforcement regime set out in former Part 9.4B of the Corporations Law [see Vines v ASIC [2007] NSWCA 126]. A contravention of these provisions with the added elements provided by section 1317FA amounted to an offence. One of the limbs of section 1317FA included the phrase "dishonestly" and that has been construed as incorporating the approach set out in Peters [ Clark and Forge v The Queen (2004) 50 ACSR 592].

[40]

(2) A person who contravenes a civil penalty provision is not guilty of an offence except as provided by subsection (1)." 59 The present charges were brought pursuant to the operation of the transitional provisions of the Corporations Act by reference to s184(2), carried over from the Corporations Law and which I have earlier set out. Any pre-existing liability under that provision was thus carried over into the Corporations Act as in the present case. 60 One of the limbs of s1317FA includes the word "dishonestly". Its explication in Peters is to be found in the joint judgment of Toohey and Gaudron JJ at 504, quoted below: "[18] In a case in which it is necessary for a jury to decide whether an act is dishonest, the proper course is for the trial judge to identify the knowledge, belief or intent which is said to render that act dishonest and to instruct the jury to decide whether the accused had that knowledge, belief or intent and, if so, to determine whether, on that account, the act was dishonest . Necessarily, the test to be applied in deciding whether the act done is properly characterised as dishonest will differ depending on whether the question is whether it was dishonest according to ordinary notions of dishonesty or in some special sense. If the question is whether the act was dishonest according to ordinary notions, it is sufficient that the jury be instructed that that is to be decided by the standards of ordinary, decent people. However, if "dishonest" is used in some special sense in legislation creating an offence, it will ordinarily be necessary for the jury to be told what is or, perhaps, more usually, what is not meant by that word. Certainly, it will be necessary for the jury to be instructed as to that special meaning if there is an issue whether the act in question is properly characterised as dishonest." [emphasis added] 61 In Ghosh the Court of Appeal in the UK introduced an additional element to the test of dishonesty. It was not enough to find dishonesty according to ordinary notions or the ordinary standards of reasonable and honest people. In addition, the defendant must have realised that what he or she was doing was by those standards dishonest. The test was formulated in these terms: "In determining whether the prosecution has proved that the defendant was acting dishonestly, a jury must first of all decide whether according to the ordinary standards of reasonable and honest people what was done was dishonest. If it was not dishonest by those standards, that is the end of the matter and the prosecution fails.

[45]

With some exceptions that are presently irrelevant, Treasury Legislation Amendment (Application of Criminal Code) Act (No 3) of 2001 commenced operation on the same day as sub-section 2.2(2) of the Code (i.e. 15 December 2001) (see sub-section 2(1)). Section 4 of that Act ensured that it only applied to acts and omissions that took place after the amendment commenced; i.e. 15 December 2001. 66 The Crown correctly submits that to construe the phrases "applies on and after 15 December 2001" in subsection 2.2(2) of the Code as applying to events before 15 December 2001 provided they were tried after 15 December 2001 (as was contended by the appellant), would create an inconsistency with s4 of the Treasury Legislation Amendment (Application of Criminal Code) Act (No 3) of 2001. It would also involve getting retrospective effect to a provision having penal consequences, albeit here in favour of the accused (see R v Miah [1974] 1 WLR 683 at 694). 67 Relevantly here, even were the indictment not to have been amended by abridgment of it to 14 December 2001, the gravamen of the charges was the dishonest concealment that occurred, most relevantly up to the earlier time when the two leases were created (20 April 2001, August 2000). I consider the period thereafter was simply evidence of continued concealment. There was no significant alteration to the features of that concealment after 14 December 2001. In those circumstances, to have made a Ghosh direction even had the indictment not been amended by bringing the date back to 14 December 2001 would have involved an unjustified concession to the accused. Clearly the accused when offered that concession rejected it and the trial judge, correctly in my view, declined to give that direction when it was again offered by the Crown. The Ghosh direction not only was in conflict with High Court authority (Peters, Macleod). It could never have applied to the time that the offences essentially occurred. 68 It remains to consider whether, notwithstanding the words of subsection 2.2 of the Code, s130.3 applied to the whole of the events comprehended by the charge merely because the proceedings brought against the accused post-dated 15 December 2001. 69 I agree with the Crown's submissions that there is no basis in the relevant legislation to give retrospective effect to the modified definition of dishonesty, as incorporated in subsection 184(2). 70 Moreover there is force in the contention that the structure of s184 supports the adoption of the Peters approach. Subsection 184(2) refers to the accused "us[ing] their position dishonestly" whereas subsection 184(1) refers to the accused being "intentionally dishonest". The latter is suggestive of the accused having to be specifically aware that their conduct was dishonest whereas the wording of subsection 184(2) does not suggest that. Even were the position otherwise, I would not give leave under rule 4 of the Criminal Appeal Rules for this ground to be argued when the appellant declined the opportunity on the two occasions that the matter was raised for a Ghosh direction. 71 I turn now to the actual direction itself, in considering whether it properly differentiated between dishonesty and impropriety in relation to the relevant conduct under subsection 184(2)(a). 72 The trial judge gave the jury an aide memoire (at [23] of her trial directions) regarding the elements of the offence which disclosed the elements as being: 1. The Accused was a director of a corporation - Envirostar Energy Ltd.

[53]

[45] The accused says that, at the very least, the evidence does not establish beyond reasonable doubt that he had the state of mind alleged by the Crown. In the ASIC interview he asserts that, by disclosing his association with the project developer, Environmental Energy, in his mind he was making adequate disclosure of his association with the Stapylton and Morwell projects generally, so that, in his mind, there was no need to specifically mention his association with the companies that were the owners and lessors of the land. 74 Prior to the giving of this direction to the jury, her Honour had heard argument from Counsel regarding the elements of the offence constituted by s184(2)(a) of the Act (T, 235-242; 279, 288-292; 301-331; 348-349). 75 It is said by the appellant that the trial judge should have directed the jury as to the "difference between improper and dishonest use of position" and, as said to be required by Peters, the trial judge should have directed the jury as to what "dishonesty did not mean". 76 Given that no such direction was sought by counsel for the appellant at the trial, leave under rule 4 would be required. For the reasons I set out below, I do not consider there is any substance in the submission or that leave under rule 4 ought to be given. 77 The legislative history demonstrates a clear shift in the criminal penalty from an officer or an employee making "improper" use of his position to the current s184(2) which is predicated on use of position "dishonestly". Thus the Companies Act 1981 (Cth) providing the text for the Companies (NSW) Code provided in the then s229(4) that "an officer … of a corporation shall not make improper use of his position as such an officer … to gain directly or indirectly an advantage for himself or for any other person or to cause detriment to the corporation". 78 In Chew v The Queen (1992) 173 CLR 626, Dawson J (who agreed with the reasons for judgment of Mason CJ, Brennan, Gaudron and McHugh JJ) considered that "it is clear enough that a director of a company may act improperly with no intention of acting dishonestly or otherwise than in the best interests of the company as a whole" (at 640). 79 Further on, Dawson J observed "for my own part I cannot, with respect, equate dishonesty in the context of s229(1) with mere impropriety. As I have said, the use of power for an impermissible purpose, viewed objectively as it should be, may be improper but it is not necessarily dishonest." 80 Dawson J's observation points to the conclusion that a dishonest use of a director's position would necessarily mean that the use was also improper, but not every improper use of position is necessarily dishonest. 81 In R v Byrnes (1995) 183 CLR 501 Brennan, Deane, Toohey and Gaudron JJ endorsed the view expressed by Dawson J in Chew, to the effect that an objective standard applied in determining what amounted to impropriety and quoted with approval Dawson J's distinction between impropriety and dishonesty (at 514). They held: "Impropriety does not depend on an alleged offender's consciousness of impropriety. Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstance in the case … But impropriety is not restricted to abuse of power. It may consist in the doing of an act which a director or officer knows or ought to know that he has no authority to do."

[54]

Then, in relation to the interrelation between impropriety and conflict of interest their Honours said (at 517): "But a director who takes part in a decision to enter into a transaction in which the director or a third party in whom the director has an interest or to whom the director owes a fiduciary duty stands to gain an advantage or benefit but who does not make an adequate disclosure of his interest acts improperly." 82 It can be seen that the breadth of what is encompassed by impropriety is not matched by the narrower ambit of dishonesty. The latter is to be determined according to ordinary notions of what the community would regard as dishonest, judged by a jury who decide by reference to "the standards of ordinary decent people" (Peters at 504 at 18). 83 This was said in Peters to be subject to there being no "special meaning" given to the expression "dishonest" in the relevant legislation creating the offence. I do not discern any special sense in that use in s184(2). However, the dishonesty has to be in some way connected to the officer's use of the position itself with the requisite intention of "directly or indirectly gaining an advantage … or causing detriment to the corporation …", that advantage being either for the officer or for someone else. Here, the advantage for Mr Kwok was simply his making sure that his associated company held the lease as lessor in each case. Gaining that kind of assured result is clearly an advantage. 84 As to degree of advantage, it was never shown that either lease was on specially favourable terms to the lessor, nor would I draw any inference to that effect. I do not consider the trial judge had sufficient basis for inferring that "his companies Donaldson Industries and Macarthur Transport stood to make a very large financial gain", if that is attributed to the lease. 85 His dishonesty lay in his concealment of his connection with the relevant companies in order to assure himself that the relevant lease would be taken by EEL from those two companies, Donaldson and Macarthur. But for that relationship being concealed, the outcome would have been, as Mr Gillespie said in evidence, that Mr Kwok would have been excluded from any negotiations on those lease deals or any discussions, with no certainty that EEL would have acquired the leases as lessee from the two companies associated with Mr Kwok; AB, 122-124 being T, 80-82. 86 Hence, the dishonesty lay in the concealment of Mr Kwok's interest in those two companies in order to facilitate the taking of the lease as lessee from those two companies with which he was associated, clearly involving dishonesty and not just impropriety. 87 The appellant's complaint comes down to what is said at 7.4 of the written submissions, namely: "at the very least the jury should have been directed that, if they were satisfied that the appellants merely acted improperly, and they had a doubt that he acted dishonestly in relation to the whole transaction, then they should acquit because the Crown would not have proved its case beyond reasonable doubt"; written submissions at 28-9. 88 I do not agree with that submission. The Crown correctly submitted, to direct the jury as to difference between "improper" on the one hand and "dishonest" on the other would have simply been confusing. It was never suggested that the use of position here was anything other than dishonest in the sense I have described. This is so though the advantage was not obtaining a lease on excessively favourable terms so far as the lessor companies were concerned but rather the concealment of association in order to facilitate the taking of the two leases from the companies associated with Mr Kwok, so taking any uncertainty out of the equation, as to whether the two companies would get the lease. 89 I therefore conclude that there is no basis for granting leave under rule 4 with respect to that which was said to be missing from the trial judge's directions. Indeed I would go further and conclude that there was no basis for concluding that any such direction should have been made if sought. The directions given were sufficient for that matter.

[58]

(iv) exhibit XXX being an email from the Appellant to Mr Coundanaris in August 2002 in which the Appellant referred to the owner of the Stapylton land as not knowing anything about Envirostar's business." 92 To this the Crown submitted that if this material had been objected to when it was tendered on the basis that it fell outside the period of the amended indictment, it would have still have been admitted because it was evidence of the accused's state of mind after the event, reflecting on his state of mind at the relevant time (Judgment at [9]). 93 Thus it was submitted by the Crown that "evidentiary material which tended to show that, after the end of the period in question, the appellant was still failing to disclose, and in some respects was disguising, the identity of the owner of the Stapylton land was clearly probative of whether he had that state of mind during the relevant period." 94 It should be borne in mind that the concealment related to events at some distance in time from when the relevant lease was granted, namely February 2002 and August 2002 as against when the Stapylton lease was granted of 20 April 2000. Thus I would consider that the probative value of this evidence was open to potential objection, though it could not be said that admitting it was outside the range of permissible discretion of the trial judge albeit the accused was denied the opportunity to put argument against the admission of that evidence. 95 Even if that were in some limited sense prejudicial, so overwhelming was the evidence of concealment bearing upon the appellant's dishonest state of mind that I would conclude that there was no substantial miscarriage of justice occasioned thereby. Following the approach mandated by Weiss v the Queen (2005) 224 CLR 300, I consider that, evaluating the evidence in the trial that was properly admitted, the court was able to be satisfied that the offence was proved beyond reasonable doubt in each case. That evidence, none of which falls outside 14 December 2001 can be summarised as follows: (i) the detailed disclosure that was made in the financial statement for Envirostar for the year ending 30 June 2000 of the dealings between Envirostar and Energy Equipment (exhibit AA at AB, 23); (ii) the detailed disclosure that was made in the financial statement for Envirostar for the year ending 30 June 2001 of the dealings between Envirostar and Energy Equipment; (iii) the fact that at the Board meetings of Envirostar on 10 May 2000, 27 July 2000, 13 December 2000 (Ex O, AB, 2; Ex P, AB, 4) there was disclosure of the existence of other conflicts made to the Board; (iv) the names chosen by the appellant for holding ownership of the land namely Donaldson (which was suggestive of a connection with the previous owner) (T, 97.2) and Macarthur. On the face of it none of these companies had any obvious connection with "Energy Equipment" or the like; (v) a note the appellant sent to his personal assistant at Envirostar, Zarya Simmons, in March 2002, in relation to the payment of rent for the Stapylton site stating that the cheque for rent was lost and that: "We need to cancel the cheque as requested by Donaldson (Ian McDonald) and issue him with a new cheque that he is going to collect on Monday am" [ex GG AB 2, 813] Ian MacDonald was the original owner (via a company) of the Stapylton site. Graham MacDonald was his son (T, 97.9). Graham MacDonald and his interests had sold out in 2000. (vi) a note sent by the appellant to Jim Docherty, the company secretary of Envirostar stating: "I have received a call from the Tax Office in Victoria, as the owner of the Morwell has requested to pay for the stamp duty. Should we query the Commissioner? - just pay for it …" (vii) a further note from the appellant to Docherty stating, inter alia: "I spoke to Grant William the owner of Morwell. I told them the problem is that EEL do not deserve to pay the penalties as we are not doing anything wrong! … " 96 To this evidence should be added the ASIC interview with Mr Kwok at AB 3, 1307 and following. 97 The trial judge had directed the jury regarding the attempt by Mr Kwok to explain in the ASIC interview why he had failed to make disclosure, namely that "in his mind, by disclosing to the board the potential conflict between Environmental Energy Company (that is the project developer's) and Envirostar [EEL], he was making adequate disclosure in relation to the transaction as a whole". 98 The questions and answers in the interview, particular at AB 3, 1388-9, T, 83-84, showed that Mr Kwok was relying on general information given to the board as to his relationship with various family members such that the board must be taken to be aware that a company of which a member of his family was a shareholder or director was associated with Mr Kwok. That argument did not really assist Mr Kwok since the disclosure had to be specific and in relation to a particular transaction, there being no formal general disclosure that Mr Kwok must be taken to be interested in any corporation of which the relevant family members were directors or shareholders.

[60]

SENTENCE 100 The trial judge in her sentencing remarks made broad reference to "the objective seriousness of the offences" without distinguishing between the two; see AB, 537 para 17. 101 The trial judge reminded herself that she was required, pursuant to s16A(1) of the Crimes Act 1914 that she was required to "impose a sentence of a severity appropriate in all the circumstances"; AB, 539 at para 26. Her Honour also reminded herself that she was required to take into account the matters set out in s16A(2) of the Crimes Act 1914 in particular that each offence formed a part of a course of conduct; AB, 540 para 27. 102 However, when it came to the actual sentencing, her Honour simply imposed in respect of the first offence an 18 month periodic detention order with a 12 month recognisance release order and, in the case of the second offence, a 24 month periodic detention order with a 14 month recognisance release order, noting that the latter was approximately 60%, meaning 60% of the head sentence and then determining that the sentences would be concurrent; AB, 541 at para 31. 103 I agree with the observations of Howie J, whose judgment on sentence I have had the advantage of reading, that the trial judge was in error in failing first to decide what sentence ought to be imposed before considering how it was to be served. I also agree that there was no reason for the sentence for the second offence to be greater than that for the first offence. 104 I would respectfully add that, as Howie J observed the trial judge did not in terms follow the principle of totality. That is, by first determining the sentence appropriate for the criminality of each individual offence and then coming back from the result of a simple aggregation, with totality of the criminality being again considered in determining whether the sentences ought to be imposed concurrently or partly cumulatively and to what extent; see most recently R v Harris [2007] NSWCCA 130 and, as to whether the sentences ought to be imposed concurrently or consecutively, Cahyadi v R [2007] NSWCCA 1 ((2007) 168 A Crim R 41 at [27]. 105 This Court is therefore able to consider afresh the appropriate sentence for the relevant offences based upon proper sentencing principles. 106 In considering the nature and circumstances of the offence, there is one matter which I conclude was not given proper weight by the trial judge in her sentencing remarks. The evidence demonstrates that the two leases were granted on terms which did not indicate any financial disadvantage to either of the two lessor companies beyond having the greater assurance of obtaining the leases by reason of Mr Kwok's involvement in the determination to grant those leases by EEL. Though there was thus no detriment to EEL, there was that advantage to each of the lessor companies associated with Mr Kwok through his family. In particular there is no evidence that the advantage went beyond that greater degree of assurance that the leases would be granted to the two companies so as, for example, to render the leases more favourable in their rental or other terms than would have resulted from an arm's length determination of those terms on a reasonable basis. 107 In those circumstances, there is indubitably a contravention of s184(2)(a) insofar as an advantage was gained for the two lessor companies. That the degree of advantage was no more than the assurance of obtaining the leases, it not being open to be inferred that those leases were on other than reasonable arm's length terms does lead me to conclude that the offences were to that extent only intrinsically less serious. That said, the element of dishonesty in terms of concealment, not merely by omission but by active steps, remains a matter of significance bearing on the seriousness of the offence. This is particularly so in the context of directorial obligation within a board, where honesty from the chief executive is fundamental and its lack not excused by good intention. 108 In Mr Kwok's ASIC interview, he emphasises that there was no intention "to make a significant benefit for myself" and "the lease that was entered there was completely fair market leases", with the project asset being transferred to the relevant EEL companies "free of charge"; AB, 1423, T, 118. The transaction as a whole was never shown to be disadvantageous to EEL and the advantage, to the extent there was an advantage, was not shown to be of any great significance so far as to the third party companies Donaldson and Macarthur were concerned. 109 The board minutes indicate that the lease was considered by independent solicitors Blake Dawson Waldron. As to other factors bearing upon the sentence, I accept the need for both general and personal deterrence but bear in mind that not only was Mr Kwok not motivated by personal gain often associated with fraudulent conduct and where no actual loss occurred but also that Mr Kwok was found by the trial judge to have good prospects of rehabilitation and was highly likely not to re-offend. 110 Against that is the importance properly emphasised by the trial judge in "white collar matters" of the need for honesty in corporate governance. Her Honour also found that Mr Kwok's actions and motivations reflected his deep commitment to developing these green energy projects having made a huge investment in both time and money working night and day to ensure the projects were successful in circumstances where there was no loss to EEL. 111 Nor can it be gainsaid that the ultimate result of the concurrent service of two sentences was a fourteen month's non-parole period with earlier service under periodic detention. 112 However, in all the circumstances, applying to the aggregate sentence the principle of totality of criminality and recognising that there was, if not a single episode of criminality, certainly common factors as between the two offences, I would reduce the sentences imposed upon the appellant. I would substitute sentences as proposed by Howie J and would concur in the orders his Honour proposes. 113 HIDDEN J: I agree with Santow JA and Howie J. 114 HOWIE J: For the reasons given by Santow JA I agree that the appeal against conviction should be dismissed. 115 The appellant has also sought leave to appeal against the sentences imposed upon him. He was sentenced by Judge Murrell (the Judge) on the first count to imprisonment for 18 months to be served by way of period detention and, in respect of the second offence, to imprisonment for 24 months also to be served by way of periodic detention. The sentences are to be served concurrently and the appellant is subject to a recognisance release order in respect of the sentence for the second count after serving a period of 14 months. 116 The offences for which the appellant was convicted each carried a maximum penalty relevantly of imprisonment for 5 years. 117 There are three grounds as follows:

[70]

The offender is deeply embarrassed and ashamed. This embarrassment and shame do not appear to relate to the failure to disclose the conflict of interest. Rather, it relates to the collapse of Enviro Star and the public humiliation associated with the criminal proceedings against the offender. In any event, he has voluntary isolated himself in a social sense, even from his wife and children, with whom he maintains limited contact. They live on the north coast of New South Wales, whereas he resides in Queensland where he has employment. The offender's principal source of support and solace is the Catholic Church." 120 The Judge emphasised the necessity for general deterrence in sentencing for offences relating to misconduct by directors of companies. She noted that a directorship is a position of trust and carries with it a high degree of responsibility and accountability. Her Honour indicated that offences of this type might be difficult to detect and to prosecute. She thought it very important to promote "a culture of frankness and complete integrity" in directors in relation to corporate activity, particularly where those activities were of a publicly listed corporation. In my opinion there was no error in what her Honour said in this regard and it was clearly a matter to which she had to have very significant regard. Whether she gave it undue weight can only be ascertained by having regard to the sentences imposed, a matter that I shall consider shortly. 121 Her Honour believed that, as well as general deterrence, personal deterrence was important. The appellant had a previous conviction for obtaining a valuable thing by deception in May 1991. The appellant was sentenced to perform 500 hours community service. Her Honour was not aware of the facts of the matter although she concluded it must have been of some seriousness having regard to the penalty imposed. There was no evidence that the offence related to any position that the appellant held with a company. In my opinion there was no necessity for the sentences for the current offences to reflect specific deterrence by reason of an offence of dishonesty committed ten years before the subject offences and over fifteen years prior to the sentencing hearing. 122 The Judge found that the appellant had good prospects of rehabilitation despite what she referred to as "a prior offence of a similar nature". Her Honour also found that the appellant was generally a "hard-working and well-motivated man" and that the lesson learned from the convictions for these matters meant that he was unlikely to re-offend. With respect, these findings are difficult to reconcile with the Judge's view that there was a need for the sentences to reflect an element of specific deterrence. The only similarity in the nature of the prior offence and the present matters was apparently some element of dishonesty although that was not a very significant aspect of the present offences. 123 It is difficult to know the degree to which the error in relying on specific deterrence affected the sentence imposed but it might explain why it appears to be excessively harsh having regard to the facts of the offence of which the appellant was convicted. In my opinion a sentence of 2 years imprisonment is excessive regardless of how that sentence is to be served. Although the appellant has submitted that the Judge ought to have suspended any sentence imposed, I am not persuaded that it was not within the discretion of the Judge to require the appellant to serve some element of immediate custody, even though a sentence of periodic detention has a very substantial degree of leniency involved in it. 124 There also seems to me to be a fundamental error in the manner in which her Honour structured the sentences. I accept that, although there was a very significant degree of commonality in the two offences, some accumulation was required in order to reflect the total criminality. There were different properties and different schemes carried out to hide the involvement of the appellant in both. He was to receive a benefit in respect of each. However the manner in which her Honour approached the task of determining the appropriate sentence was, in my opinion, erroneous. 125 It has been made clear by this Court, on many occasions, that a sentencing judge is to determine the length of the sentence before considering how that sentence is to be served: see R v Zamagias [2002] NSWCCA 17, a case that has been applied repeatedly by this Court as authority for that proposition. I do not believe that this is the course that the Judge took in determining the sentences she imposed. Her Honour stated:

[72]

The word "not" in the third sentence of that passage is obviously an error. 126 In my opinion it is clear that the Judge had determined to impose a term of periodic detention before she had decided what sentence ought to be imposed upon the appellant. Further, because the sentence was to be one of periodic detention, her Honour appears to have increased the term of the sentence accordingly. I can read the passage quoted above in no other way. 127 The actual sentences imposed, in my view, also disclose an error in the exercise of the sentencing discretion. There was no reason for the sentence for the second offence to be greater than that for the first offence. Her Honour does not explain why the criminality reflected in the second offence was greater than that in the first, particularly to the extent of warranting a 25 per cent increase in the sentence appropriate for the first offence. The only possible explanation for the sentences is that her Honour thought that the overall criminality warranted a sentence of 24 months. She achieved that result, not by fixing the appropriate sentence for each offence and then dealing with the issue of totality by considering whether the sentences ought to be concurrent or partly cumulative, in accordance with the principle established by Pearce v The Queen (1998) 194 CLR 610, but by imposing the overall sentence for the offending on the second offence and making that concurrent with the sentence for the first offence. 128 The appellant raised neither of these matters but that does not prevent this Court from considering whether there was error in determining the sentence and whether that error resulted in a sentence that was excessive. In my opinion the overall sentence imposed is excessive in its length principally because of errors in the manner in which the Judge determined it. 129 At the end of the day the only deprivation suffered by the company as a result of the conduct of the appellant was its ability to determine whether to embark upon the leases independently of any contribution to the negotiations or decision making by the appellant. The company was entitled to know the true situation as to the appellant's interest in the properties in case that fact was relevant to the decision it was to make. But it seems that the deceptive conduct of the appellant was probably unnecessary and it appears unlikely that the company's decision would have been any different had it known the true situation. 130 In my opinion the sentences imposed upon the appellant should be reduced. I propose the following orders:

At a glance

Court

Decision date

Before

Source

Judgment (75 paragraphs)

Parties

Legislation Cited (5)

Cases Cited (10)

Cited By (5)